Reaction to the Rate Cut

It's tough to deny that the Fed breathed some life back into the equity and debt markets yesterday. But apart from this market surge, what should commercial real estate investors really expect this steep rate cut to accomplish on a longer-term basis?

To be sure, many skeptics doubt that yesterday's rate reduction will ultimately win over investors who have largely shunned both the commercial mortgage-backed security (CMBS) and commercial real estate collateralized debt obligation (CDO) markets in recent months. Two thorny issues — the challenge of unwinding complex debt instruments while boosting investor confidence — may stand in the way of any longer-term benefit from the Fed's latest effort.

“Securitization allowed risk to be sliced and diced. Then the banks simply unloaded the credit risk onto investors after deluging them with structured products,” said John Plender, senior editorial writer and columnist at the Financial Times.

Plender, who also serves as chairman of British-based property firm Quintain, addressed the Association of Foreign Investors in Real Estate (AFIRE) fall conference in Washington, D.C. earlier this week. The conference drew more than 200 of the largest offshore investors in U.S. commercial real estate.